- Bitcoin’s inflation rate will drop to 1.8% following the Bitcoin halving.
- Ethereum’s maximum inflation rate will be 1.8% following the switch to Ethereum 2.0.
- The global average inflation rate is well above 3%.
As global markets suffer significant losses, many countries have turned to economic relief plans to cushion the economy. These economic relief plans often come in the form of trillions of dollars in stimulus. With trillions pumped into global economies, debate over global inflation resurfaces.
Coincidently, traditional safe-haven assets like gold have seen a significant rise in value since the beginning of COVID-19. With cryptocurrency inflation rates unalterable by any single entity, can cryptocurrencies provide a viable solution?
Bitcoin, the largest and most established cryptocurrency, has a maximum supply of 21 million Bitcoin. According to CoinMarketCap, Bitcoin’s current circulating supply is 18,361,900 BTC equating to a current market cap of $165,726,040,434.
Bitcoin is a proof-of-work cryptocurrency and thus, Bitcoin’s yearly emission rate is determined by the block reward. For the last four years, the Bitcoin block reward has been 12.5 Bitcoin. This means miners receive 12.5 BTC for mining a block on the Bitcoin network. With a Bitcoin block time of 10 minutes, every year 657,000 Bitcoin is added to the circulating supply. This equates to a 3.65% inflation rate. However, this will change in less than a week with the Bitcoin halving.
Bitcoin halvings occur roughly every 210,000 blocks (~4 years). The highly anticipated Bitcoin halving, less than 3 days away, will halve the block reward from 12.5 Bitcoin to just 6.25 Bitcoin. Following the Bitcoin halving, Bitcoin’s yearly emission will halve to 328,500 Bitcoin, equating to an inflation rate of 1.79% per annum.
Unlike Bitcoin, Ethereum does not have a limited supply. According to CoinMarketCap, the current Ethereum supply is 110,792,786 ETH. With an average block time of 13.40 seconds and a block reward of 2 ETH, approximately 4,706,865 ETH is added to the circulating supply every year. While this equates to a 4.45% inflation rate, the Ethereum 2.0 upgrade will significantly decrease emissions.
Ethereum 2.0 includes a serious of network upgrades. Among these upgrades is a switch to proof-of-stake. According to a recent podcast, Vitalik Buterin mentioned that Ethereum’s switch to POS will reduce yearly ETH issuance to a maximum of 2 million ETH. Furthermore, Buterin mentioned that issuance will most likely be less than 2 million, equating to a maximum inflation rate of 1.9%.
Litecoin, another popular cryptocurrency, has a maximum supply of 84 million LTC. Litecoin is a proof-of-work cryptocurrency with a block time of 2.5 minutes and a block reward of 12.5 LTC. According to CoinMarketCap, the current Litecoin supply is 64,659,143 LTC. With a yearly emission of 2,628,000 LTC, the digital currency has an inflation rate of 4.06%. With the last halving occurring just last year, Litecoin’s inflation rate will remain relatively high until its next halving in 2023.
EOS another large cryptocurrency employs Delegated Proof-of-Stake (DPOS). Delegated Proof-of-Stake allows users to vote for a small number of delegates to validate the blockchain. The voting power directly corresponds to the amount of EOS the wallet holds.
EOS’ current circulating supply is 922,356,272 EOS, and unlike Proof-of-Work cryptocurrencies, it does not have a fixed block reward. EOS’ emission rate is determined by a fixed inflation rate, which is voted upon by the EOS network. Prior to February of this year, the EOS inflation rate was 5%. However, the inflation rate has since changed to 1% following a network vote in February.
How Fiat Compares
With trillions in economic stimulus entering the global economy, economists have grown worrisome about inflation. However, the cryptocurrency inflation rates of the largest cryptocurrencies is in some cases only half of the current global average.
Global inflation data is heavily skewed by developing countries experiencing hyperinflation. Zimbabwe’s current inflation rate is north of 150%, low-inflation cryptocurrencies like Bitcoin and Ethereum provide a viable solution. While Bitcoin is impractical for daily transactions due to its fees and block time, Ethereum is the perfect candidate. The decentralized nature of cryptocurrencies prevents any part or entity from increasing inflation.
The average US inflation rate has been well over the 2% target over the last decade. Furthermore, current inflation data does not factor in COVID-19 stimulus. While inflation rates projected to rise many have taken interest in alternative assets, like gold and cryptocurrencies.
With cryptocurrency inflation rate lower than the global average in many situations, cryptocurrencies offer a potential solution as a hedge against hyperinflation.
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